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FUNDAMENTALS OF SUPPLY CHAIN MANAGEMENT
INTRODUCTION
✓ Supply chain has been defined as the network of organizations that are involved through the
upstream and downstream linkages in different processes and activities that produce value in
the form of products and services in the hands of ultimate consumers.
✓ It is also referred to as all the specific actions required to bringing a specific product from raw
materials to a finished product in the hands of consumers
✓ Supply chain management on the other hand is a network of connected inter-dependent
organizations mutually and cooperatively working together to plan coordinate and control the
flow of materials and information from suppliers to the end users
✓ The following diagram is used to illustrate supply chains

Raw material
components
(sourcing)

Supply

Production
process
subsequent
work in
progress

Material management

Finished goods
inventory
(warehouse)

Deport
distribution
centers
(customers)

Distribution

Historical development of SCM
-

There are 6 major components which can be attributed to the evolution of supply chain
management to its current status
- The major stages of SC are as follows
1. Creation era
✓ The term supply chain management was first coined by a US industry consultant in the early
1980’s.
✓ However, the concept of a supply chain in management was of great importance long
before especially with the creation of assembly lines.
✓ This era is characterized by down-sizing driven by cost reduction programs, re-engineering
and wide spread attention to the Japanese practice of management
2. Integration era
✓ This era was highlighted with the development of internet based collaborative systems such
as electronic data interchange and enterprise resource planning during the 1990’s.
✓ It was characterized by both increasing value adding and cost reductions through integration
3. Globalization era

✓ Attention was given to global systems of supply relationships and the expansion of supply
chains over national boundaries and into other continents.
✓ It was characterized by the integration of global sources into organizations co-businesses.
✓ The goal was to increase their competitive advantage, value adding and reducing cost
through global sourcing.
4. Specialization era Phase 1
✓ In 1990’s industries began to focus on core competences and adopted a specialization
model i.e. companies outsourced functions considered non-core to other companies.
✓ This changed management requirement by extending the supply chain well beyond
company walls and distributing management across specialized supply chain partnerships
5. Specialization era Phase 2
✓ As a result of market changes there was increased specialization with the inception of
transportation brokerages, warehouse management and non-asset based carriers.
✓ This development led to the integration of specialized participants as components of supply
chain networks
✓ This enabled companies to improve their overall competences by focusing on their core
functions and to assemble a network of best in class partners.
6. Supply chain management era
✓ There has been uneven growth in supply chain management discipline in the recent past.
✓ Increasingly companies(public and private) are recognizing the contribution of supply chain
management to the overall firm’s performance
✓ In addition SCM discipline has witnessed more researchers devoting more publications to it
besides learning institutions developing supply chain management curriculum

*Objectives of SCM
1. Maximize overall value generated – this is the difference between what the final product is
worth to the customer and the effort the supply chain extends in filling the customer’s request
2. Profitability – through proper management of flows of information of products, information or
funds within the supply chain. It is also by improve operation efficiency and speeding up
material flow downstream. Flow of information provides competitive advantage and increases
productivity
3. Customer loyalty – this is obtained through providing high customer service levels.
Characteristics of a supply chain
1. Emphasizes on process approach – set of logically related tasks performed to achieve an
outcome. Its main concern is how the product is delivered to the customer of which matters less
to the customer.
2. Supply chains differ – organizations form networks of chains with common point of interconnection. Each organization is both supplier and customer

3. Linked to value chains – each activity within a chain provides input. From this input value is
added. The final product that a customer receives contains aggregate of the added values.
4. Linked to time – the shorter the chain the less costly
5. Emphasize on cross functional teams – encourages interdepartmental communication within
the department rather than command and control through divisions.
Contribution of procurement to SCM
a. Inbound operations including transport from suppliers and receiving inventory
b. Outbound operation including all fulfillment activities, warehousing and transportation to
customers
c. Order promising, accounting for all constraints in the supply chain including all suppliers
manufacturing facilities and distribution centers.
Reasons for increased recognition of SCM
a. Proliferation in product line
The taste and preference of customer grows rapidly hence the need for varied products and
services. Varied goods and services gives a customer more variety to choose from.
b. Shorter product life cycle
This prevents the issue of product obsolesce. Lack of demand may lead to writing off of huge
inventory amounts at end period.
c. Higher levels of outsourcing
Focus is on core activities while non core activities are outsourced. High level of outsourcing
makes a supply chain more vulnerable
d. Shift in power structures in the chain
The entities closer to the customers are more powerful. With increased variation in products
there is less retail shelf space. Retailers have realized their power and forced manufacturers to
be more responsive to their needs and demands. This leads manufacturers to respond quickly to
customer demands
e. Globalization of manufacturing
This is simply extending the products that an organization has to offer to the global market

SUPPLY CHAIN DESIGN
✓ Supply chain design addresses key issues such as:
a. The inventory of the chain
b. Plans
c. Warehouses
d. People
e. Suppliers needed to operate the chain
✓ The key strategic decisions in supply chain design include
a. Activities to be carried out by the nodal firm and which activities should be outsourced
b. The partners to perform the various activities either within or from outside and what nature
of relationship should be exhibited
c. Decisions pertaining to the company’s location and size of the partners and facilities.
The basic illustration of a supply chain design is as follows

2nd tire

1st tire supplier

1st tire

2nd tire

✓ As evidenced above, supply chain management is composed of 4 major elements which allows
for its successful operation.
✓ The elements are as a result of disintegrating the supply chain management network into
components that can be individually managed to oversee the success of the entire chain.
✓ The elements include
a. Procurement and supply management
b. Material management
c. Physical distribution management
d. Logistics management

a. Procurement and supply management
✓ Interested with the definition and objective of procurement, principles and procedures.
Principles of purchasing
1. Quality
- This is the conformance specification
- Dimensions of quality include
a. Durability

b.
c.
d.
e.
f.

Reliability
Aestheties
Perceived quality
Performance
Conformance

2. Right quantity
✓ Amount of items or materials required to permit continuity in operations
✓ Factors to consider
a. Holding cost
b. Season variations
c. Demand
3. Right price
✓ This ...